Updates from BestWorld’s AI Botmaster Jeremy Lichtman of July 25, 2024

BestWorld’s staff of Michael, Brian, and Carolyn are competing with Botmaster Jeremy’s Mult-AI Panel on our forecasting question of What is the probability that the US Federal Reserve Board will cut interest rates in September 2024?

The human team’s predictions today:

25-July-2024 [Brian] 0.66 The Peoples Bank of China (PBOC) raised interest rates today. Action is out of step with the Fed. The correlation between the Federal Open Market Committee (FOMC) and PBOC on interest rates is 0.07. Holding forecast.

25-July-2024 [Carolyn] 0.6 Federal-funds futures markets on July 25 implied a roughly 23% chance that the Federal Reserve will cut its key interest rate by at least a 0.5 percentage point by September, according to CME Group data as reported in the Wall Street Journal.

AI Panel Predictions

[Claude]: (AI predicts: 0.45)

[Mistral]: (AI predicts: 0.4)

[OpenAI]: (AI predicts: 0.45)

Median: 0.45

 

Previous day’s forecasts —>

More about our Staff vs Jeremy’s Multi-AI Panel Competition here —>

Welcome to the Multi-AI Panel.

AI Panel Discussion Round 1

[Moderator]: What is the probability that the US FED will cut interest rates in September 2024?

AI Panel Discussion Round 1

[Claude]: Thank you, Moderator. When considering the probability of a Federal Reserve interest rate cut in September 2024, we must examine several key factors. First and foremost, the economic landscape between now and then will play a crucial role. The Fed’s decisions are heavily influenced by inflation trends, employment data, and overall economic growth.

Currently, the Fed has been maintaining a relatively hawkish stance to combat inflation. However, if we see a consistent downward trend in inflation and a potential slowdown in economic growth over the next year, the probability of a rate cut in September 2024 could increase. It’s worth noting that the Fed typically moves cautiously, preferring to wait for clear signals before changing course.

Given the uncertainties in global economic conditions and potential unforeseen events, I’d estimate the probability of a rate cut in September 2024 to be around 40-50%. This takes into account the potential for economic cooling, but also acknowledges the Fed’s tendency to err on the side of caution when it comes to loosening monetary policy. Of course, this estimate could change significantly based on economic data and geopolitical events in the coming months.

[Cohere]: The probability of the US Federal Reserve cutting interest rates in September 2024 is difficult to determine with certainty, but there are several factors and expert opinions that can help inform our prediction.

Firstly, it’s important to consider the Federal Reserve’s mandate to maintain price stability and maximize employment. The persistence of high inflation above the Fed’s 2% target has been a key concern, delaying expected rate cuts. However, there are signs that inflation may be easing, with a slowdown expected in the second half of the year. This could give the Fed more confidence to cut rates, but they will want to see concrete evidence of a downward trend over several months. Expert opinions are varied, with some predicting a September rate cut and others expecting the Fed to wait longer. A Reuters poll in July 2024 indicated that a growing majority of economists foresee two rate cuts this year, in September and December. This is supported by Morgan Stanley’s research, which also predicts three cuts of 25 basis points each, starting in September.

However, the Fed’s cautious approach and the resilience of the US economy and consumer demand may result in a slower reduction in rates. In conclusion, while a September 2024 rate cut is possible, the Fed will likely proceed with caution, closely monitoring inflation and labour market data before making any significant adjustments.

[OpenAI]: Thank you, Moderator. Predicting the actions of the US Federal Reserve (FED) is always challenging due to the multitude of variables they consider. As of now, the probability of a rate cut in September 2024 would be impacted by several key factors: economic growth, inflation trends, and labor market conditions. Currently, if the economy continues on a trajectory of steady growth without overheating and inflation remains within the target range of the FED, the likelihood of a rate cut is relatively low. The FED traditionally uses rate cuts as a tool to stimulate an economy that is slowing down.

Furthermore, we need to consider external factors such as geopolitical tensions, global economic health, and potential financial disruptions that could necessitate a more accommodative monetary policy stance. For instance, if global economic growth is sluggish or if there are significant financial market disturbances, the FED could be motivated to cut rates to support economic stability.

Lastly, it’s crucial to observe the communication from FED officials in the months leading up to September 2024. Their public statements, minutes from meetings, and economic projections provide valuable insights into their decision-making process. At this moment, unless there is a significant downturn or a marked slowdown in economic activity before September 2024, the probability of a rate cut seems moderate but not highly likely.

[AI Economist] We’ll now hear from you.
Discussion Round 2

[Claude]:  Thank you for the opportunity to provide closing remarks. I’d like to build on some of the points made by my fellow panelists and add a few additional considerations.

One key factor we should emphasize is the potential impact of the 2024 U.S. presidential election on the Fed’s decision-making. Historically, the Fed has been reluctant to make significant policy changes close to major elections to avoid the appearance of political influence.

With the election in November 2024, a September rate cut could be seen as particularly sensitive. This political context might reduce the likelihood of a rate cut in that specific month, even if economic conditions otherwise warrant it.

Additionally, we should consider the global economic landscape. As mentioned, factors like geopolitical tensions and international economic health play a role. But I’d add that the monetary policies of other major central banks, particularly the European Central Bank and the Bank of Japan, could influence the Fed’s decisions. If these banks maintain tight monetary policies, the Fed might be more hesitant to cut rates to avoid potentially destabilizing currency exchange rates.

Lastly, while current projections and expert opinions provide valuable insights, it’s crucial to remember that unexpected events can dramatically shift economic conditions and policy responses. The COVID-19 pandemic is a prime example of how quickly the economic landscape can change, forcing central banks to take swift and decisive action. While we can’t predict such events, their potential to occur should be factored into our probability assessment.

Given all these considerations, I would estimate the probability of a Fed rate cut in September 2024 to be around 30-40%, slightly lower than some previous estimates due to the added election-year complexity.

[Cohere]: Thank you, Moderator, and my fellow panelists, for an insightful discussion. In closing, I’d like to emphasize a few key points that could influence the probability of a Fed rate cut in September 2024.

Firstly, while the Fed’s mandate to maintain price stability and maximize employment has been mentioned, it’s crucial to recognize that their actions are also influenced by their longer-term goals. The Fed aims to achieve sustainable economic growth and avoid boom-and-bust cycles. With this in mind, they may opt to delay a rate cut if they anticipate that doing so could lead to an unsustainable surge in economic activity, followed by a sharp downturn.

Secondly, while the Fed closely monitors inflation trends, it’s important to consider their preferred inflation metrics. The Fed typically looks at a range of inflation measures, including core inflation, which excludes volatile food and energy prices. Should these metrics show a divergence, with some measures indicating a sustained downward trend while others remain elevated, the Fed might hesitate to cut rates prematurely.

Lastly, while external factors such as geopolitical tensions and global economic health are important considerations, the Fed’s primary focus is the domestic economy. Unless there is a significant spillover effect from external events onto the US economy, the Fed may deem it prudent to maintain a relatively hawkish stance, especially if domestic economic indicators remain robust.

In conclusion, while a range of factors and expert opinions suggest the possibility of a rate cut, the Fed’s cautious approach, longer-term goals, and the complexity of economic indicators could lead them to adopt a wait-and-see attitude. As such, I concur with the probability estimates provided by my fellow panelists, placing the likelihood of a rate cut in September 2024 at around 30-50%.

[OpenAI]: Thank you, Moderator, and esteemed panelists. As we draw our discussion to a close, I would like to introduce a few additional perspectives that might further refine our predictions regarding a potential Fed rate cut in September 2024.

Firstly, it is essential to consider the broader fiscal policy landscape. Should the government introduce substantial fiscal stimulus measures, either through tax cuts or increased public spending, the Fed might see reduced necessity to cut rates. Such fiscal policy actions could independently stimulate economic activity, potentially counterbalancing any decelerations that might otherwise prompt the Fed to lower rates. Additionally, fiscal policies aimed at targeted support, such as infrastructure development, could have significant multiplier effects that reinforce overall economic robustness.

Secondly, another dimension to examine is the evolving nature of monetary policy frameworks. The Fed has shown openness to revisiting and potentially revising its policy tools and frameworks, as evidenced by its adoption of “average inflation targeting” in 2020. If there are any shifts or innovations in its policy tools between now and September 2024, this could influence their rate-setting decisions in ways that historical precedents might not fully capture. In conclusion, while the range of factors discussed—including inflation trends, labor market conditions, global economic health, and political considerations—paint a complex picture, the Fed’s cautious complexity in balancing various economic indicators suggests measured deliberation.

Given this array of influences, I would align closely with the consensus, recognizing the multiple scenarios that could affect the likelihood of a rate cut. Accordingly, a probability estimate in the range of 30-50% appears judicious, albeit subject to revision as new economic data and policy shifts unfold.

AI Panel Predictions

[Claude]: (AI predicts: 0.4)

[Mistral]: (AI predicts: 0.35)

[Cohere]: (AI predicts: 0.4)

[OpenAI]: (AI predicts: 0.35)

Median: 0.38

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